‘Representatives of large businesses are permitted to design tax laws to advance their interests.’
Photograph: Stefan Wermuth/Reuters

Her Majesty’s Revenue and Customs is no longer fit for purpose. A lack of resources and its closeness to big business mean it is unable to maximise tax revenues, provide a good service to taxpayers or adequately enforce tax laws – its fundamental requirements. Deep reforms are needed to make it fit for the 21st century.

Despite parliamentary hearings on the tax practices of Google, Microsoft, Amazon, Apple and Starbucks, there is a dearth of legal test cases involving large companies. There is a temptation to let the lying dogs sleep. A good example of this is the information provided by whistleblower Hervé Falciani, which showed that HSBC’s Swiss operations might have helped wealthy people to dodge taxes. Only one individual from the Falciani list of some 3,600 potential UK tax evaders has been prosecuted. In January, HMRC quietly abandoned its investigation.

In providing a business-friendly tax regime, the government has effectively privatised tax policymaking and enforcement. The current executive chair of HMRC has been a vocal opponent of a clampdown on tax avoidance and referred to taxation as “legalised extortion”. HMRC’s non-executive directors come entirely from big business, with previous connections to KPMG, the CBI tax committee, Smith & Nephew, Brunner investment trust, Aviva, PricewaterhouseCoopers, British Airways, Anglo-American and Cadbury Schweppes, to name just a few.

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Representatives of large businesses are permitted to design tax laws that could advance their interests. For example, a working group consisting entirely of representatives from GlaxoSmithKline, Rolls-Royce, Eisai pharmaceuticals, Syngenta, Shell, Dyson, Arm, KPMG, Vectura and AND Technology Research drafted what eventually became known as the Patent Box legislation. They secured a special tax concession worth over £1bn a year for large corporations.

The government’s 2013 showpiece anti-avoidance measure, known as the General Anti-Abuse Rule, gave HMRC powers to check abuses of tax laws. However, to pursue anyone HMRC needs permission not from a panel of retired judges but from a panel of business people. Unsurprisingly, there have been few test cases involving big business.

And there is a lack of parliamentary oversight. Earlier this year, HMRC made a sweetheart deal with Google enabling the company to settle its 10-year tax liabilities with a payment of £130m, an effective rate of less than 3%. Other corporations are also thought to have received special deals. However, parliamentary committees have been unable to scrutinise the deals.

There is a huge public accountability deficit in HMRC. The Labour party should be putting this at the forefront of its tax policy, with new proposals set out today in an independent report, of which I am a co-author.

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Our report recommends the creation of a supervisory board to watch over the HMRC executive board. It would not have any responsibility for the day-to-day running of HMRC. It would consist entirely of stakeholders, meet in the open and focus on HMRC’s ability to maximise tax revenues, make sustainable cost savings and improve the service to customers. It would focus on the quality of enforcement in order to increase tax collection, including the number of prosecutions against large businesses and high-net-worth individuals. It would also be the first port of call for tax whistleblowers.

Confidentiality should not obstruct parliamentary scrutiny of HMRC’s sweetheart deals. It should be up to the relevant committee to decide whether any examination should be conducted in closed meetings. There is precedence for this – the intelligence and security committee can take evidence in private.

HMRC raises £75 for every £1 spent on investigating large businesses. So there is an unassailable case for additional investment. But not just that – staff sitting in anonymous regional offices cannot appreciate the peculiarities of local fishing, oil or agriculture, so local tax offices are key nodes in the provision of services, and must be reopened.

The above is not a panacea for the organisation’s deep-seated problems, but it would strengthen public accountability and HMRC’s ability to do what it’s supposed to.